Actively Pursue Growth in Global Emerging Markets: WCM Investment Management
Focused Growth Approach of WCM Investment Management
Members of WCM’s investment team explain why two overlooked elements—moat trajectory and corporate culture—are the keys to uncovering the best long-term, global growth opportunities.
WCM Investment Management provides innovative growth equity solutions that go beyond borders and benchmarks to find what they believe are the best opportunities the world has to offer for long-term growth potential. Through in-depth, fundamental proprietary research, WCM focuses on companies with growing competitive advantages and superior corporate cultures.
This combination, WCM believes, enables them to seek long-term excess returns and mitigate downside risk for their concentrated portfolios – whether in emerging markets, global equities or international small caps.
This combination, WCM believes, enables them to seek long-term excess returns and mitigate downside risk for their concentrated portfolios – whether in emerging markets, global equities or international small caps.
Focused Growth Approach
WCM’s bottom-up investment approach seeks to identify companies with attractive fundamentals, such as low or no debt, rising returns on invested capital, and reasonably predictable free cash flow generation. The team focuses on assessing the trajectory of a company’s competitive advantage (“economic moat”) and the alignment of its corporate culture with this economic moat.
MOATS
Businesses with durable and growing competitive advantages.
CULTURE
Great people, empowered and engaged, define success.
TAILWINDS
Businesses benefiting from long-lasting global trends.
FOCUSED
Only best ideas; outperform with controlled risk.
VALUATION
Great growth companies at fair prices contribute to margin of safety.
WCM feels strongly about the correlation between corporate culture and investment returns and has a dedicated business culture analyst who works closely with business analysts and portfolio managers. Their culture analysis focuses on finding corporate cultures that foster behaviors beneficial to the company’s competitive edge, that display adaptability in the face of internal and external challenges, and that permeate the organization at all levels.
Overall, the firm’s highly selective equity process, with a minimum time horizon of 3–5 years, includes the criteria shown in the above graphic. Also, risk control is systematic and built into every aspect of the WCM process. This helps to ensure portfolios participate to a much lesser degree when markets decline.
Emerging Markets
WCM’s Emerging Markets strategy follows the firm’s bottom-up, fundamental growth approach to seek companies strengthening their competitive advantages (moats), building superior, moat-complementary corporate cultures, and benefiting from what WCM believes are some of the strongest global tailwinds. “Emerging markets are full of opportunity and rapid progress, brimming with innovative companies that appear poised to create tremendous value over the coming decades,” said Mike Trigg, Portfolio Manager and Business Analyst.
Key factors included in WCM’s approach to emerging market growth opportunities:
WCM’s Emerging Markets strategy follows the firm’s bottom-up, fundamental growth approach to seek companies strengthening their competitive advantages (moats), building superior, moat-complementary corporate cultures, and benefiting from what WCM believes are some of the strongest global tailwinds. “Emerging markets are full of opportunity and rapid progress, brimming with innovative companies that appear poised to create tremendous value over the coming decades,” said Mike Trigg, Portfolio Manager and Business Analyst.
Key factors included in WCM’s approach to emerging market growth opportunities:
Megatrend tailwinds
Urbanization, digitalization, and the rise of the global middle class are long-term trends fueling significant growth across emerging markets. WCM focuses on companies positioned to take full advantage of these trends, believing they stand to generate strong and consistent revenue and earnings growth over the long term. Technology, consumer, and healthcare companies play nicely into these growth trends.
Beyond benchmarks
Building a portfolio that is different from the benchmark is critical to investment success in emerging markets, WCM believes. In fact, if you invest in the MSCI Emerging Markets Index, about 50% of your portfolio is composed of financials, telcos, energy, basic materials, heavy industry and utility companies. Not only do these sectors grow more slowly than their underlying economies, but they are dominated by state-owned entities that operate for the state, rather than for private shareholders’ benefit.
Consumer-driven economies
Over the last few decades, emerging markets economies have evolved from being almost entirely based on commodities and low-cost manufacturing to being more and more consumer driven. In fact, today’s emerging-markets-based companies are delivering technology innovation not just for global consumption, but for their own regional use as well. WCM’s Emerging Markets strategy tends to be overweight to these consumer-driven sectors and industries, which WCM believes are driving the future growth in emerging markets economies.
Pattern recognition
WCM employs the same approach, process and investment framework across all of their global growth strategies. By leveraging a single team of global generalists, WCM is able to uncover patterns across global markets that can be missed by sector and regional specialists. For example, the speed of technology and information flow today enables a business success story happening one place in the world to be rapidly replicated elsewhere around the globe.
Consider WCM’s high active share, concentrated emerging market equity strategy:
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This material is provided for informational purposes only and should not be construed as investment advice. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the portfolio managers as of February 2020. These are subject to change. There can be no assurance that developments will transpire as forecasted. Actual results may vary.
MSCI Emerging Markets Index is an unmanaged index that is designed to measure the equity market performance of emerging markets.
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RISKS: The fund invests primarily in shares of emerging market companies. Investments in equities may be subject to large price fluctuations. The fund is subject to specific risks, including Emerging Markets risk: Funds investing in emerging markets may be significantly affected by adverse political, economic, tax or regulatory developments. Investing in emerging markets may not provide the same degree of investor protection or information to investors as would generally apply in major securities markets. In addition, exchanges in emerging markets may be very fluctuating. Finally, funds may not be able to sell securities quickly and easily in emerging markets. Portfolio Concentration risk: Funds investing in a limited number of securities may increase the fluctuation of such funds’ investment performance. If such securities perform poorly, the fund could incur greater losses than if it had invested in a larger number of securities. Derivatives/Counterparty risk: Funds may enter into listed and unlisted derivative contracts in order to have an exposure to underlying assets or to protect their direct assets. Payments on these contracts vary with changes of the value of the underlying assets. These contracts may cause the funds to have a higher market exposure than they would have otherwise, which may in some cases increase losses. Unlisted contracts are agreed with a specific counterparty. If the counterparty goes into liquidation or fails or defaults on the contract, the fund could suffer a loss. Because they are not listed, these contracts can be difficult to price. Smaller Capitalization risk: Funds investing in companies with small capitalizations may be particularly sensitive to wider price fluctuations, certain market movements and less able to sell securities quickly and easily. An investor’s capital will be at risk; you may get back less than you invested. Please refer to the full prospectus for additional details on risks.
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